Courtesy of Pam Martens
Federal Reserve Building in Washington, D.C.
The biggest trading scandal in the Federal Reserve’s 108-year history took down two Federal Reserve Bank Presidents yesterday. Boston Fed President Eric Rosengren, who traded in and out of REITs last year in amounts of $1,000 to $50,000, will leave this Thursday; Dallas Fed President Robert Kaplan, whose trading made Rosengren look like a Boy Scout, will step down from his post at the end of next week. Kaplan was making repeated trades of “over $1 million” in S&P 500 futures (an instrument used during and after stock exchange hours by hedge funds) as well as making “over $1 million” trades in a litany of individual stocks.
Just as a poker player can give away his hand with a tell, financial disclosure statements can also provide a tell as to the name of the Wall Street firm that is placing the trades.
Dallas Fed President Robert Kaplan has a “tell” on his financial disclosure forms that suggests he was placing at least some of his trades at the Wall Street firm where he worked for 22 years, Goldman Sachs, the global trading behemoth.
Most trading accounts at the major firms have what is called a “sweep account.” When a trader sells a stock, instead of the proceeds sitting in cash without earning interest, the proceeds are “swept” into a designated money market fund. The only money market fund that Kaplan indicates he owns is listed as the “GS Financial Square Money Market Fund” on his financial disclosure form. GS stands for…wait for it…Goldman Sachs.
The Goldman Sachs Financial Square Money Market Fund was not listed on Kaplan’s financial disclosure form for calendar year 2015, the year he joined the Dallas Fed. But it was listed on his financial disclosure forms for years 2016 through 2020.
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